Tech Today: Trump Tech Moves Weigh, Cirrus Surges, Microsoft’s Cloud

As reported on this site several times in recent weeks, the administration of Donald Trump nearing big new restrictions on technology exports to China.

The Wall Street Journal’s Bob Daviscites multiple unnamed sources as saying “the National Security Council and the Commerce Department are putting together plans for “enhanced” export controls, designed to keep such technologies from being shipped to China.”

The article doesn't specify what parts could be included in such a ban, but some observers quoted in this magazine have mentioned the prospect of a broad ban on semiconductors. In past, Commerce has selectively imposed export restrictions to China of some chips from Intel (INTC) and Nvidia (NVDA).

The trade headlines are weighing on tech and the broader market this morning, undercutting several upbeat pieces of research today.

Getting Concerned About Intel

Shares of Intel are down $1.07, or 2%, to $51.43, after Instinet’s Romit Shah cut his rating on the stock to Neutral from Buy after the sudden departure last week of Chief Executive Brian Krzanich, which he calls “disappointing on many fronts.”

Shah is upset not only to see Krzanich go, but also concerned about Krzanich’s recent admission that the company will lose some microprocessor market share to Advanced Micro Devices (AMD) in the server market.

"The lack of leadership will only add to the already growing uncertainty about Intel's long-term franchise," writes Shah.

As for who comes next at the top of Intel, Shah thinks most likely, the company will promote Dr. Murthy Renduchintala, "who oversees most of Intel's product groups."

But that is not Shah's preference; he thinks the company should go outside. "Dr. Renduchintala is a well-respected engineer but we think won't immediately convince investors that Intel can overcome its challenges."

"We believe Intel needs to hire an external candidate such as Hock Tan at Broadcom (AVGO) or Sanjay Jha from GlobalFoundries that have a proven track record of driving shareholder value."

Microsoft to Profit From Cloud

Shares of Microsoft (MSFT) are down $1.16, or 1%, at $99.25, despite an upbeat note from James Cordwell of Atlantic Equities, who this morning raised the stock to Overweight from Neutral as he takes over coverage from a colleague, highlighting a trifecta of Azure cloud computing, the Office365 productivity suite, and videogames.

Cordwell sets a $125 price target.

He believes Azure can reach $115 billion annually in revenue in a decade from now, up from what he estimates will be $7.2 billion this year. That would place it a solid number two behind Amazon’s AWS cloud computing, which he expects will hit $185 billion per year in that time. He figures the two together will have 70% or so of the cloud computing infrastructure market.

Moreover, Azure is going to become the biggest driver of Microsoft’s profit, he predicts.

“Overall, we expect Azure to be the biggest driver of Microsoft’s incremental gross profit dollars over the next three years, contributing 41%/$11.4bn of the incremental $27.8bn we are forecasting.

“This is despite assuming a slowdown in both Azure’s revenue growth (55% CAGR vs >90% YoY in FY18) and its pace of gross margin expansion (~500bp average annual improvement vs ~1500bp average over the last two years), both of which could prove conservative given the pace at which enterprises are undertaking digital transformations and resultingly embracing the cloud.”

Good News for Qorvo, Skyworks

Analysts Karl Ackerman and Matt Ramsay with Cowen & Co. report that things are looking up for wireless chip makers Qorvo (QRVO) and Skyworks Solutions (SWKS), based on what they're hearing about the volume of production by Apple (AAPL), Samsung Electronics (005930KS), and, especially, China’s Huawei.

“Entering this earnings season, we think both QRVO and SWKS’ JunQ results have the opportunity for some modest upside against low expectations,” writes Ackerman as her raises estimates for both companies.

“Our supply chain work on smartphone builds from Samsung and Huawei are holding up okay into both CQ2 and CQ3, which should support the slightly more favorable backdrop for iPhone builds,” write the analysts.

“Looking into CQ3, however, builds should now approximate 77MM units (+5% Q/Q, -7% Y/Y). This is up from our previous view of 71MM units on expectations for strong promotions of older generation models and an earlier than usual expected launch of the Note 9.

Speaking of Apple, Bloomberg’s Mark Gurman and Debby Wuthis morning report that the company is at work on a follow-up version of the AirPod wireless earphones, adding waterproof capabilities and also great wireless range in terms of distance from an iPhone, citing multiple unnamed sources. The device is expected to cost more than the $159 of the current version, and to be available in late 2019, they write.

That could be good for Cirrus Logic (CRUS), according to Christopher Rolland of Susquehanna Financial Group.

He just got back from a tour of Asia, where he learned that Cirrus has won the business to supply new adoptive noise-canceling circuitry for the second gen AirPod. He figures that is worth $50 million in annual revenue for Cirrus, but deems the 50 cents in extra earnings per share it may add to be more meaningful.

Cirrus stock is up $3.14, or over 8%, at $40.74.

Apple shares are down $1.43, or 0.8%, at $183.49.

Criteo Can Escape Apple’s Clutches

Shares of Internet advertising technology firm Criteo (CRTO) are up 10 cents at $33.96 after Raymond James analyst Aaron Kessler this morning raised his rating on the shares to Outperform from Market Perform, and assigned a $41 price target, after concluding that the company's plunge in its revenue growth rate from 28% last year to 5% this year is going to reverse itself in 2019, with sales perhaps rising by 15%.

The biggest factor in that is that Criteo may finally come out from under the shadow of Apple’s ad-blocking technology, known as “ Intelligent Tracking Prevention,” or ITP.

“We believe Apple ITP remains the biggest headwind as Criteo is not able to retarget on Apple’s Safari browser,” writes Kessler.

“While the max exposure was ~22%, Criteo has been able to offset about 30% of the impact (i.e., Chrome browser, in-app not impacted).

“Criteo continues to look for a workaround, and we remain cautiously optimistic here.

“To the extent that Criteo can shift more towards in-app targeting, this should help to further offset the Apple impact. In 1Q, in-app revenues ex-TAC increased over 60% y/y and represented ~25% of total revenues.”

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